David and Lisa sign a purchase and sale agreement for a home in Lexington, Massachusetts. The agreement includes a standard liquidated damages clause stating that if the buyer defaults, the seller shall retain the deposit as the seller's sole remedy. David later defaults without legal justification. The deposit held is $30,000. The seller subsequently resells the property for $15,000 more than the original contract price. Under Massachusetts law, what is the seller's remedy?
Correct Answer
C) The seller retains the $30,000 deposit as liquidated damages, which is the exclusive remedy under the contract's liquidated damages clause.
Under Massachusetts law, a valid liquidated damages clause in a purchase and sale agreement entitles the seller to retain the deposit as the agreed-upon remedy for buyer default, regardless of the seller's actual damages or subsequent resale price. The clause represents the parties' pre-agreed calculation of damages. The fact that the seller resold at a higher price does not entitle the buyer to a refund, nor does it reduce the seller's contractual entitlement to the deposit. The liquidated damages clause is the exclusive remedy as stated in the contract.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
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